Tech sell-off erases nearly $2tn from Nasdaq in a month

By Sophie Lindqvist

Nearly $2 trillion in market value has been erased from the tech-heavy Nasdaq in a month. The Associated Press reported that the sell-off, which started earlier in the month, accelerated on Friday after disappointing earnings from leading technology companies drove US markets down by hundreds of billions of dollars.

How large was the tech sell-off?

The Associated Press counted nearly $1 trillion in lost Nasdaq value over one week. On Friday alone, the Nasdaq Composite fell more than 3%, erasing hundreds of billions of dollars.

The report said the S&P 500, which tracks the 500 most valuable US companies, lost more than 1% on Friday. That wiped out hundreds of billions more and put the index on course to erase its October gain, even though it had set an all-time high during the same month.

The Dow Jones Industrial Average fell less. Outside technology, trading was mixed: the S&P 500 had a roughly even split between gainers and losers, according to the Associated Press.

The report said more than $2 trillion in market value was set to be wiped from the Nasdaq 100 during October. That monthly loss would exceed SpaceX's entire market value slightly, while the index had fallen more than 5.8% as the AI trade met what the Associated Press called “turbulence.”

The broader backdrop had not changed uniformly. The Associated Press said expectations for US companies to deliver bigger profits had driven the S&P 500 to its record earlier in the month, even as people worldwide felt discouraged by high inflation and high fuel prices.

That contrast helps explain why disappointing results could unsettle a record-setting index. The report tied the earlier rally to expectations for stronger profits, so weak earnings and heavier spending plans challenged confidence in future growth.

Why did earnings deepen the sell-off?

The Associated Press identified Meta Platforms, Alphabet and Amazon as hyperscalers racing to expand AI infrastructure. All three raised their spending forecasts further, intensifying scrutiny of the money flowing into AI.

The report said investors were asking whether those hundreds of billions of dollars can produce returns quickly enough. A central worry was that the build-out might not generate enough profit or productivity to justify its cost.

The spending did not signal a retreat from AI. According to the Associated Press, all three companies were spending more to expand infrastructure; investors were challenging the economics of that expansion, not its continuation.

Intel tumbled nearly 30% on Friday and was on course for its worst trading day since 1974. The chipmaker beat analysts' expectations for its latest-quarter profit, but its forecast for profit in the final three months of this year fell far short.

The Associated Press's contrast shows why a better past quarter did not stop the rout. Intel's stock reaction centered on the weaker forecast for the final three months, which came in below analyst expectations.

Amazon fell 1.8% after it reported weaker profit for the summer than analysts expected. The company also disclosed that it had spent more during the year than anticipated, adding a spending concern to the earnings miss.

The stock's decline was smaller than Alphabet's, but it left investors with two weak signals. According to the Associated Press, Amazon delivered a weaker profit picture while reporting a larger amount of spending than anticipated.

A day earlier, Alphabet shares dropped more than 12%. The one-day move erased $500 billion in market capitalization and produced the company's worst trading day on record.

Alphabet also said it burned through more cash during the summer than during the spring. According to the Associated Press, the company attributed that increase to mammoth AI investments similar to the spending plans behind the broader sell-off.

Why did Nvidia and data-center stocks lose ground?

Nvidia fell 3.1% on Friday. The chipmaker had been worth about $5 trillion before the drop, and the Associated Press called it the “poster child of the AI frenzy” because of its chips.

The report said Nvidia's decline was the heaviest force pulling the S&P 500 lower. Its move, alongside Intel's near-30% drop, showed how the sell-off reached companies expected to benefit from AI infrastructure spending.

Shares of other computer-chip companies and winners from the frenzy to build AI data centers also came under pressure. The Associated Press said investors feared that high interest rates could slow the further build-out of data centers.

The concern linked high rates to the pace of AI expansion. A slower data-center build-out would mean less immediate demand for the companies selling into that construction, according to the report's framing.

What changed in the AI trade?

The sell-off rested on more than one question about AI. The Associated Press account linked several pressures: bigger hyperscaler budgets, uneven profits, weak forecasts and tighter conditions for data-center expansion.

Meta Platforms, Alphabet and Amazon said they would spend more. Alphabet's cash use and Amazon's annual spending showed where that money was going, while their profit results raised a separate question about what those outlays currently earn.

Intel added the supplier-side warning. Its latest quarter beat expectations, but its forecast for the final three months of the year did not. The Associated Press described the reaction as investors looking through the stronger result toward the weaker outlook.

Nvidia's 3.1% fall added weight at the top of the market. At roughly $5 trillion in value before the drop, the company was the largest single drag on the S&P 500, according to the report.

Taken together, these moves put pressure on both sides of the AI build-out. The hyperscalers face questions about returns from their spending, while chipmakers and data-center suppliers face questions about demand and financing.

What will determine the next move?

The Associated Press framed the central test as whether hundreds of billions in AI investment can produce enough profit and productivity soon. That question now sits beside high interest rates, which could limit the pace of the data-center expansion that supports chip demand.

Company results that demonstrate stronger profit could support the expectations behind the S&P 500's earlier record. Results that fail to do so would leave the current pressure on AI-linked stocks in place.

For now, investors have shifted the burden of proof from AI ambition to AI returns. The next leg of the sell-off will depend on whether company results show that the spending is becoming productive before high rates tighten the market.